PARIS, Oct 28 (Reuters) – The French economy posted meager growth in the third quarter as household spending stagnated and a sharp rise in inflation in October pointed to headwinds in the final quarter of the year.
France’s economy grew 0.2% in the July-September period, in line with market expectations, preliminary data from official statistics agency INSEE showed.
Stubbornly high inflation, export weakness and energy supply risks will weigh on the euro zone’s second-largest economy in the coming months, analysts said, while the European Central Bank hiked interest rates to curb price rises.
Bank of France Governor Francois Villeroy de Galhau said he sees no reason to downgrade his forecast for GDP growth of 2.6% in 2022, but that there are clear signs of weakness in the eurozone as a whole .
“That means robust growth this year and at least a significant slowdown next year,” Villeroy said in a webcast hosted by financial site Boursorama.
Villeroy, who is also a member of the European Central Bank, said “significant” progress had already been made in the ECB’s attempt to stave off a historic surge in inflation.
France has done better than its neighbors at taming price increases, thanks in part to early energy price caps and fuel subsidies, but economists have warned its heavy spending on blanket household protections is storing up pain for later.
After two consecutive months of declining inflation in France, which bucked the broader euro-zone trend, consumer prices rose sharply in October. Food prices rose 11.8% annually, while energy prices rose 19.2%.
On an EU-harmonised basis, inflation rose by 1.3%m/m and held the annual rate at 7.1% – almost a full point higher than in September and surpassing a record high for France of 6.8% in July.
The data came a day after the European Central Bank hiked interest rates again amid fears that rapid price growth was becoming entrenched. It raised its deposit rate another 75 basis points to 1.5% – the highest rate since 2009.
The outlook for France remains difficult as inventories are expected to be a negative contributor to growth from next quarter, ING analysts said.
“With investment at half-staff, risks to energy supplies, persistently high inflation and an overall slowdown in export demand, it is difficult to expect a strong recovery in growth in the second half of 2023,” ING said.
French President Emmanuel Macron warned policymakers against “destroying demand” in a newspaper interview this month.
ECB President Christine Lagarde on Thursday dismissed political criticism that rapid rate hikes threatened to push the euro zone into recession, arguing her job is to bring inflation under control.
Reporting by Richard Lough; additional reporting by Michel Rose Editing by Silvia Aloisi, Angus MacSwan, William Maclean
Our standards: The Thomson Reuters Trust Principles.
Comments are closed.